Q. I’m hearing the words ‘negative equity bantered around just lately, what does this mean and how does it affect me personally?
A. Unfortunately, because of the current financial climate the term ‘negative equity’ has reared its ugly head once again. Negative equity is usually the result of a significant decline in the property market – when the market takes a downturn rather than the upturn that most of us decided to step on the property ladder for in the first place. When the housing market drops in many cases the seller’s outstanding mortgage on the property is higher than the properties actual value, this unfortunately would put you in a ‘negative equity’ position. Hence if you decided to sell whilst in this position the proceeds of the sale would be insufficient to pay off the outstanding mortgage. The best advice I can give anybody in a negative equity position is to sit tight and ‘ride the storm’ as it were. The property market naturally has highs and lows and at some point when the market recovers and begins to stabilize the prices will once again begin to rise and you will find the position will naturally correct itself. If you needed to sell obviously it will be at a loss so I would suggest that maybe you consider renting the property as another option just for a while or at least until the market recovers. Many people have found their self in this vulnerable position over the years but as a rule as long as you have bought a good solid property in a good location things will naturally resume back to normal with time. Property is always a good investment in the long term whatever the market conditions.